Thoughts from the Industry: Distribution, Parity, and Driving Direct Booking
By Gino Engels Co-Founder, OTA Insight | November 03, 2019
The hotel distribution landscape has seen a pronounced evolution in the last decade. The dominance of booking travel online has resulted in a shifting relationship between OTAs and hotels. Once seemingly existing in harmony, the rise in OTA market share, fuelled by traveller booking behaviour, caught hotels off guard as direct bookings took a hit. Further players in the distribution game, such as wholesalers and metasearch, have served to complicate matters and hotels have found themselves being undercut.
OTA Insight recently spoke to industry experts about managing distribution and how hotels should drive direct bookings. They also weighed in on the importance of managing parity.
Distribution in an Ever-Changing Landscape
The expansion of technology within the hospitality industry has seen the beneficial impact of a wealth of distribution channels for room inventory. Hotels are able to be much more targeted with distribution and adapt pricing and availability across different channels to more profitably yield their inventory. Hotels also have the option of relying on just a few partners with global scale to distribute inventory.
With so many new options to consider and the distribution landscape continuing to rapidly evolve, it can be daunting for hoteliers and revenue managers to build a confident strategy and allocate spend. Troy Lovatt, Vice President of Revenue Management at ONYX Hospitality Group, spoke of the competitive nature of the landscape with the rise OTAs and metasearch, paired with the changes in technology enabling wholesale agents to sell to both B2B and B2C clients.
Said Troy: "Everything is becoming blurred. You've got OTAs that are becoming more metasearch. Metasearch are becoming OTAs. Amazon is reaching into booking airlines and hotels. These different distribution channels are becoming one big conglomerate, which is going to be very difficult for hotels to understand where to send the best money."
Mark Tierney, Group Director of Revenue & Distribution at Quest Apartment Hotels, felt the key to refining distribution strategy lay in trying to "understand and educate, and work with franchisees to understand where there's an opportunity".
He expanded: "Getting advertising money spend to drive in that digital landscape is interesting when there's a lack of education. We're coming up against things like Booking.com drastically splashing their customer acquisition marketing spend and pushing that into their retention strategy." Indeed, OTAs spent approximately $10.6 billion on marketing in 2018, a figure hotels cannot compete with, but that doesn't mean the battle is over.
Ultimately, the evolution of the landscape means hotels and even OTAs themselves are being pushed to innovate in their strategies in the face of disruptors such as Airbnb and Google. Marriott announced their move into the "experiences marketplace" earlier this year and events such as Phocuswright Europe showcased the emergence of companies providing blockchain-based solutions for hotel revenue and distribution that is sure to affect the distribution chain overall.
Going Direct With Data
Hotels have continued to put faith in direct bookings and loyalty programmes, and whilst this hasn't drastically wrestled market share back from OTAs, there are signs this approach is starting to work. A report from Kalibri Labs suggests that a number of large direct booking campaigns, many using discounted room rates, have generated loyal guests. Troy confirmed a focus on driving direct bookings at Onyx, also stating that "one of the big things we focus on is understanding how to use customer data more effectively".
Customer data is indeed a hot topic within the industry, with hoteliers looking to the retail sector, where companies like Amazon and Netflix thrive as a result of the deep understanding they have of their customers through the data they use to make recommendations. AI is now a method some are looking to in order to facilitate online uniqueness, enabling hotels to collect and analyse large amounts of guest data.
While the power of direct booking campaigns and opportunities that arise from using customer data gives an encouraging outlook to hotels looking to master their strategy, Melissa Kalan, Founding Director of the Australian Revenue Management Association (ARMA), advocates a blended approach to distribution partnerships: "Commission is an expense but if you look at your own marketing spend, there's no guarantee you'll get even one booking through a direct channel. Make sure you're leveraging the right channels with the best margins. It comes down to the transactional value versus the customer lifetime value on those channels."
Blended distribution is beneficial because it boosts a hotel's visibility across multiple channels, increasing the likelihood of a customer finding and booking its rooms. However, the more blended the distribution, the harder it is to control your inventory and the more opportunity there is for bad intermediaries to undercut pricing displayed on brand.com.
Which brings us on to rate parity.
Confronting Parity Problems
With an OTA Insight Survey revealing that 51% of hoteliers are unsure of their parity strategy, Troy felt a lot of people understand the issues but aren't necessarily in control. He noted: "In theory, we know exactly what to do and what the margin should be, given the retail and wholesale rates. But these days with a competitive market getting so tight, you've got agents that aren't marking up the full amount anymore."
"Some hotels manage their inventory and rates very well," he added. "So if our wholesale business is down for a specific hotel, is there any correlation in the pricing they're doing and the parity scores? If they're trying to be too aggressive in their pricing online, is that impacting with more rate parity issues? At the end of the day, the guest is confused and if you're trying to guarantee the best rate, you risk winding up with no bookings."
By familiarising themselves with parity as it relates to the current distribution landscape, hoteliers with the right tools can adopt the blended distribution approach but have a plan in place that leaves them feeling they won't lose parity as a result.
Keeping Customer Experience Front-of-Mind
Another key facet in both the acquisition struggle with OTAs and the evolution of the travel landscape is the customer experience. Travellers have become far more connected and are beginning to demand more from their experiences, with the customer journey lasting right from the planning stage to sharing their experiences on social platforms.
Mark emphasised the importance of being able to engage the customer right from the first interaction, commenting: "When consumers start that journey, the one big difference between a branded website versus an OTA is the level of detail. We are actively optimising our direct website to give additional detail that you won't find on an OTA, which is focused on price and imagery, whereas the branded sites can have more information and drive a higher conversion. It's crucial to understand the booking funnel process and where we can influence it."
Melissa recommends "simple things like colour-coding to direct customers' attention to where the value is with what you want them to purchase." Whilst Troy pinpoints pushing member rates to be public and visually pleasing so website visitors can be aware of discounts.
He comments: "We hoteliers can never compete with the OTA and the marketing spend they have but their systems are very generic", and he advises hoteliers to question how they can really push their brand website to give a unique experience, as well as thinking how you they make their website more influential to appeal to a younger generation of traveller.
So What Next?
Super apps have been the one to watch within the industry. Discussed at Phocuswright Europe earlier this year, Asia has seen them increase at real pace, with apps such as Grab, initially a taxi-booking app, which then entered the travel industry, with hotel bookings powered by Agoda and Booking. The app has been downloaded on 125 million mobile devices, with forecasts it will double revenue in 2019. WeChat is perhaps the most famous example of the super app, with more than 1 billion monthly users. WeChat is the premier messaging app within Asia, which has since expanded to WeChat Pay, with 800 million users.
Melissa notes: "Super apps are certainly an area you can't discount. It's very much an instant gratification market and there are lots of things that fill that need. Spend some time researching these and always think about how that can impact the way we do business and on-demand."
The transition of a social networking app into a transactional player is reflective of the closer B2C relationship in Asia. Trust is a high-value currency in the Asian market. With WeChat's focus on policing the app, trust has been built between themselves and their customers, allowing them to form a payment system that their customers and others feel comfortable and confident in.
With all of these developments, hoteliers are looking to harness these new avenues and ensure they have a presence at all touchpoints. With big changes in point-of-sale due to different technology patterns across regions, it's more important than ever to understand what's happening in the market and think about where rates are being distributed. If hoteliers can rise to the challenge of change, and seek out insights that can guide them, there are rewards to be gained.
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